On 27 August 2020, the Tax Court of Canada made a decision in a case, Canada vs AgraCity Ltd. and Saskatchewan Ltd., in favor of Candian company AgraCity Ltd. and related company, Saskatchewan Ltd.

The AgraCity Canada had entered into a Services Agreement with a group company, NewAgco Barbados, in connection with the sale by NewAgco Barbados directly to Canadian farmer-users of a glyphosate-based herbicide a generic version of Bayer-Monsanto’s RoundUp. NewAgco Barbados was established in 2006 to take over the role NewAgco US. In reassessing the taxable income of AgraCity for 2007 and 2008 the Canada Revenue Agency relied upon the transfer pricing rules in paragraphs 247(2)(a) and (c) of the Income Tax Act (the “Act”) and re-allocated an amount equal to all of NewAgco Barbados’ profits from these sales activities to the income of AgraCity. According to the Canadian Revenue Agency the value created by the parties to the transactions did not align with what was credited to AgraCity and NewAgco Barbados. The Canadian Revenue Agency asserted that all profits sourced in the Barbados affiliate should be allocated to AgraCity.

Consequently, the Tax Court found that the purchase, sale, and related transactions with NewAgco Barbados were not a sham, nor was any individual transaction in the series of transactions beginning with the incorporation of NewAgco Barbados for the ClearOut sales activity a sham. The transactions that occurred and were documented were the transactions the parties intended, agreed to, and that the parties reported to others including the Canadian Revenue Agency. So, the Court ruled in Candian company, AgraCity Ltd. and related company, Saskatchewan Ltd., in a dispute with the Canadian Revenue Agency over the taxation of profits from the sale of herbicide conducted through a Barbados subsidiary.